ONTARIO – Referral to arbitration and stay of action – UNCITRAL Model Law Art. 8(1) and ICAA, 2017 s.9 – Waiver of a party’s right to arbitrate requires full knowledge of rights and an unequivocal, conscious intention to abandon them. A party to an arbitration agreement does not waive its right to arbitration or render the arbitration agreement inoperative by failing to respond to emails proposing arbitration.

Justmark Industries Inc. v. Infinitus (China) Ltd.
2022 ONSC 5495 (CanLII) October 25, 2022
ON SCJ (Justice Heather J. Williams)

This was an application for a stay of an action in favour of arbitration under Article 8(1) of the UNCITRAL Model Law (“the Model Law”), which has the force of law in Ontario pursuant to s. 5(1) of the International Commercial Arbitration Act, 2017, S.O. 2017, C. 2, Sch. 5. (“ICAA 2017”).

Section 9 of the ICAA, 2017 provides that where, pursuant to article 8 of the Model Law, a court refers the parties to arbitration, the proceedings of the court are stayed with respect to the matters to which the arbitration relates. (paras. 3-5)

The parties had a contract that provided that disputes were to be arbitrated in Hong Kong by the Arbitration Committee of the International Trade Council and for the law of the United Kingdom to apply. (para. 2) The Respondent alleged that the arbitration clause was inoperative because the Applicant waived arbitration through conduct that was inconsistent with the right to arbitrate.

The Plaintiff argued that the Defendant had waived its right to require arbitration by refusing to agree to arbitrate as proposed by the Plaintiff nearly two years earlier. The Plaintiff did not initiate an arbitration but threatened that if the Defendant did not agree to arbitrate, it would commence an action in Court. The Defendant did not respond. The Plaintiff commenced this action when the two-year limitation period was about to expire in Ontario.  (para. 8)

Analysis

To establish that a party waived its right to arbitrate and render the arbitration agreement inoperative, there must be “a knowing relinquishment of rights.”  Referring to Campbell v. 1493951 Ontario Inc., 2021 ONCA 169 para. 12, the Court noted that “[w]aiver will be found only where the evidence demonstrates that the party waiving had (1) a full knowledge of rights; and (2) an unequivocal and conscious intention to abandon them.”  (para. 12)

The Defendant’s failure to respond to an email proposing arbitration did not rise to the level of waiver of its arbitration rights because there was no evidence that the Defendant had the requisite “unequivocal and conscious intention,” or any intention, to abandon its right to arbitrate. (para. 16) Williams J. also rejected the Plaintiff’s allegations that it would be prejudiced by having to arbitrate in Hong Kong. (para. 17-18)

Relying on Dalimpex Ltd. v. Janicki, 2003 CanLII 34234 (ON CA) para. 22, Williams J. noted that where it is not clear that an arbitration is null and void or inoperative, it may be preferable to leave any issue related to the “existence or validity of the arbitration agreement” to be determined by the arbitral tribunal. (para. 10)

The Court referred the dispute to arbitration pursuant to Art. 8(1) of the Model Law and the terms of the arbitration agreement, and stayed the action pursuant to s. 9 of the ICAA.